- America’s ongoing student loan crisis is real, affecting one in eight adults and accounting for 11% of consumer debt.
- Washington’s focus on what the “right amount” of universal forgiveness should be is wrong.
- Instead, legislators should focus on revising existing “over-hardship” laws that could empower debtor students and provide them with the assistance they need.
- Jonathan Carson and Eric Kurtzman are the co-founders and co-founders of Stretto, a national provider of bankruptcy technology and services.
- This is the opinion column. The thoughts expressed are those of the author.
What if all the nationwide conversation we have around student loan debt is wrong?
In the ongoing dialogue on student loans, disproportionate attention is paid to what the “right amount” of universal forgiveness is to help our country deal with this $ 1.71 trillion debt on our collective balance sheet. President Biden posted $ 10,000 per person; Senators Warren and Schumer set their bid at $ 50,000. The Department of Education and Secretary Cardone have been tasked with identifying the best way forward to help nearly 45 million Americans with study arrears.
Unfortunately, this number guessing game is wrong. To sustainably tackle the problem of student loan debt in the United States, we need to move into a pragmatic dialogue about the realities of our economy, our political environment and, most importantly, our existing laws that we can revise to help those Americans facing financial difficulties. By clarifying the existing bankruptcy code, we could rid worthy Americans of some or all of their student loan debt without creating unnecessary political waves.
Understanding the student debt landscape
Every dollar forgiven by the federal government means one dollar less in balance sheet assets for a country already heavily constrained by historic debt and recent spending on COVID-19. This forgiveness will simultaneously compete with other costly priorities, such as infrastructure plans, which will collectively affect the country’s federal balance sheet and increase the debt-to-GDP ratio.
And the prospect of forgiveness leaves out those indebted students who have chosen less expensive universities to avoid onerous loans, or who have already paid off their loans and have fairly inquired about different treatment. It also ignores future generations who would like to have the same opportunity that they will be given when their loans are due.
The availability of colleges and graduate students, or rather the absence of them, is a major problem that lies at the heart of the student debt situation. Blanket forgiveness is not helping to deal with these escalating costs. In fact, he does the opposite, removing incentives or pressure on colleges and universities to optimize their cost structures by socializing those costs among all Americans by increasing government debt.
In addition to being economically impractical, it is also important to acknowledge the tense political environment in Washington. We are in an extremely partisan and charged political environment where Congress cannot reach consensus and antagonism and obstructionism flourish. No Republican in the House or Senate voted to ease the pandemic earlier this year; instead, we see a policy line today with regard to infrastructure spending, voting rights, and obstruction of the Senate. While student debt should be an apolitical issue, the very concept of debt forgiveness (or rather, transferring these spending to the federal government) will be met with scorn by many budget conservatives.
President Biden’s forgiveness of student debt forgiveness at budget further complicates the situation and shows how much we share our views. Our politicians owe a debt to the American public, especially those who cannot afford to pay back their loans, be honest and realistic, and push for resolutions that have a chance of being passed and implemented.
But there are ways, including well-established, but little used. A possible settlement mechanism already exists in the US Bankruptcy Code – this is a student debt management tool known as “excessive difficulties… “
This effort requires a separate filing in bankruptcy court when a debtor student is brought before a judge to show that he cannot maintain a standard of living for himself or his dependents and does not expect to be able to do so during the debt repayment period. and that they have made good faith efforts to repay the loans. Unfortunately, what seems simple enough is fraught with unnecessary obstacles.
The undue hardship clause is interpreted differently in bankruptcy courts across the country, as the Bankruptcy Code does not provide specific guidance as to what constitutes undue hardship. General ambiguity aside, excessive hardship remains elusive even for the most worthy debtor students; the standard seems so burdensome in most interpretations that few attorneys even defend their clients in its pursuit. This provision caters to the few, if any, people who are financially distressed from their student loan debt simply because it is too onerous to comply.
Where we can influence change in a real, immediate and effective way is to revise this bankruptcy provision with universal guidance and applicability to achieve what Congress wanted when it first introduced it into law. If the federal government were to clarify this issue more clearly, we could see an easier and more effective way to deal with dire cases where Americans do suffer from student debt.
There is a recent and successful parallel. Congress has already successfully amended the Bankruptcy Code ceiling expansion Section V bankruptcy filings to help small business owners during a pandemic. A similar approach can be applied to the unjustified needs clause, which will provide lasting support only in the most severe cases without increasing the national deficit.
If the Biden administration and politicians are serious about tackling student debt, this is the way forward that will provide relief for student debtors today and for generations to come, while protecting the federal balance sheet by limiting forgiveness to the extent necessary for debtors to maintain a certain standard of living. instead of providing complete relaxation without regard to personal decisions or needs. Amending the bankruptcy code is an effective, affordable, fair and pragmatic policy decision.